Investment opportunities await in HK neighbourhood malls

Lawrence Wan, head of advisory and transaction services for retail at CBRE, said: “Neighbourhood malls have far more potential – they are in the heart of local communities and enjoy stable sources of customers.”

Foreign funds find good deals in smaller malls, according to Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong.

“First, these funds are betting that these malls are undervalued with current maintenance and management. And with professional management and strategic upgrading, they can improve the exterior image and internal design with a better and innovative decoration and construction strategy, and then resell the malls at substantial profit after repositioning and rebranding,” she said.

“Second, in the past few years, the commercial rental market in Hong Kong has been in a downturn trend and is likely to rebound in the future. So, in terms of market timing, now is the lowest point to enter the market, to buy.”

Petra Blazkova, senior director for Asia-Pacific analytics at Real Capital Analytics, pointed out how although foreign investment in Hong Kong property declined in 2018, investment in community malls was an exception, adding that “the sector has seen an influx of investment from both domestic and cross-border investors in the past 12 months.”

The largest deal in 2018 was made by Hong Kong private equity fund Gaw Capital partners together with Goldman Sachs and China Great Wall Asset Management. In February of last year, they bought the Link Reit portfolio for US$2.9 billion.

One of the largest malls in North Point received foreign investment a year ago. Provident Square, consisting of a gross floor area of around 210,000 square feet split over three levels, received foreign investment from real estate investment fund Pamfleet, together with Chelsfield. The fund is mainly centred on rebranding the mall – having been renamed to Worfu and designed a mural for.

The renovation was welcomed with open arms, having brought stores a significant increase in customers – but store owners did express concerns over rising rents and the impact this would have on costs to customers.

In overall Hong Kong retail spaces, foreign investment reached around US$6 billion since 2013. In solely 2018, US$3.4 billion was recorded – a figure which was more than double the US$1.49 billion seen in 2017.

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